NOTE: On February 7 2013, the press release was revised as follows: Added the following as the last sentence of the first paragraph:
“At the same time, Moody’s confirmed the D+ standalone bank financial strength rating.” Revised release follows:
Action follows merger with Ipar Kutxa and recent performance data
Madrid, November 27, 2012 -- Moody's Investors Service has today downgraded the long and short-term
deposit ratings of Caja Laboral Popular Coop. de Credito to Ba1/NP
from Baa3/P-3, prompted by the rating agency's decision
to lower Caja Laboral's standalone credit assessment to ba1 from
baa3, within the D+ standalone bank financial strength rating
category. At the same time, Moody’s confirmed the D+ standalone bank financial strength rating.
The lowering of the standalone credit assessment reflects Moody's
view that further economic stresses will weaken Caja Laboral's risk-absorption
capacity, which, in turn, is affected by (1) a declining
internal capital generation capacity; and (2) the merger with Ipar
Kutxa, SCC (not publicly rated) on 2 November 2012.
This rating action concludes the review for downgrade, which Moody's
initiated on 25 June 2012.
RATINGS RATIONALE
The downgrade by one notch of Caja Laboral's standalone credit assessment
to D+/ba1 from D+/baa3 reflects the increased vulnerability
of Caja Laboral's risk-absorption capacity to scenarios of
further economic stress.
--- WEAKENING INTERNAL CAPITAL GENERATION CAPACITY
The first factor impacting Caja Laboral's risk-absorption
capacity is its weakening internal capital generation capacity,
due to higher provisioning needs. Constituted provisions exceeded
pre-provision income in 2011 and in Q32012, causing the bank
to report a negative profit before taxes in both reporting periods.
An additional risk factor to the increasing amount of non-performing
loans is the significant amount of capital losses on Caja Laboral's
securities portfolio, which had a negative impact on the bank's
shareholder's equity of EUR147 million, as of September 2012.
The bank targets a reduction of its securities portfolio in the following
months, especially in terms of equity securities. However,
in Moody's view, this divestment strategy is subject to the
inherent volatility of the performance of financial markets, and
underpins the existing pressure on the bank's capacity to absorb
further losses.
--- MERGER WITH IPAR KUTXA
The second factor affecting Caja Laboral's risk-absorption
capacity is its merger with Ipar Kutxa. Caja Laboral and Ipar Kutxa
display similar asset-quality ratios, measured through the
addition of non-performing loans and acquired real-estate
assets from troubled borrowers; i.e. non-earning
assets. However, Moody's says that Ipar Kutxa appears
more exposed to the commercial real-estate segment (CRE),
which makes the bank, in Moody's view, more vulnerable
to scenarios of further economic deterioration. The difference
in risk-absorption capacity between Caja Laboral and Ipar Kutxa
is, however, tempered by the difference in size between both
institutions, with Ipar Kutxa's total assets amounting to
around 20% of those of Caja Laboral.
Notwithstanding the above, Moody's acknowledges that Caja
Laboral still displays a strong risk-absorption capacity relative
to the average of Spanish rated banks, driven by a relatively limited
exposure to CRE and an NPL ratio which, despite recent deterioration,
remains significantly below the system average (6.6% combining
the NPL ratios of Caja Laboral and Ipar Kutxa as of June 2012, compared
with 9.7% for the system).
Overall, Moody's believes that, following the merger
-- and taking into account Caja Laboral's current
performance and risk-absorption capacity, the bank's
credit profile is more consistent with a standalone credit assessment
of ba1.
The merger of Caja Laboral and Ipar Kutxa was completed on 2 November
2012. The merger was executed through the incorporation of a new
credit cooperative, to which both banks transferred all their assets
and liabilities. However, Moody's notes that the merged
institution holds the same name and fiscal domicile as Caja Laboral,
which will exert control over the governing bodies of the merged bank.
In addition, Moody's says that in respect of other elements
that impact the standalone credit assessment -- i.e.,
its franchise value, risk management or profitability and liquidity
position -- the merger has only partially affected Caja Laboral's
credit profile.
The downgrade of Caja Laboral's long and short-term deposit
ratings to Ba1/NP was prompted by the lowering of its standalone credit
assessment. Caja Laboral's deposit ratings do not benefit from
any systemic support, given the bank's low domestic market share
and systemic importance.
RATING OUTLOOK
Moody's negative outlook on Caja Laboral's standalone rating reflects
the very challenging operating environment, which will likely continue
to exert negative pressure on the bank's operating performance.
The negative outlook on Caja Laboral's debt and deposit ratings reflects
both the current negative outlook on Spain's Baa3 bond rating and the
negative outlook on the bank's BFSR.
WHAT COULD MOVE THE RATING UP/DOWN
An upgrade of Caja Laboral's ratings is unlikely in the near future given
the negative outlook. However, Moody's says that upwards
pressure on the ratings could develop following (1) stronger risk-absorption
capacity, to increase resilience to scenarios of further economic
stress; (2) a materially lower credit-risk concentration in
its largest exposures to well below 750% of its pre-provision
income (PPI), and below 200% of its Tier 1 ratio; (3)
a successful divestment strategy of the securities portfolio or a reduction
in the market risk appetite arising from the equity portfolio; (4)
evidence that asset-quality deterioration has been reversed on
a sustainable basis; and (5) an improvement in profitability indicators,
particularly net profits.
However, Moody's acknowledges that the achievement of most
of these goals is highly dependent on the recovery of both the domestic
economy and the operating environment for Spanish banks.
Downwards pressure on Caja Laboral's ratings could ultimately result from
(1) a weakening in its risk-absorption capacity, because
of further losses in the loan or securities portfolio than those currently
anticipated; (2) a deterioration in its deposit funding base;
and/or (3) greater deterioration in profitability indicators than that
currently anticipated. Moody's notes that any of these negative
factors could materialise if operating conditions worsen beyond Moody's
current expectations, i.e., a broader economic
recession beyond the rating agency's current GDP forecasts for Spain,
of -1.7% for 2012 and -1.0%
for 2013.
PRINCIPAL METHODOLOGIES
The principal methodology used in these ratings was Moody's Consolidated
Global Bank Rating Methodology, published on June 2012. Please
see the Credit Policy page on www.moodys.com for a copy
of this methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides relevant regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides relevant regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides relevant regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
The rating has been disclosed to the rated entity or its designated agent(s)
and issued with no amendment resulting from that disclosure.
Information sources used to prepare the rating are the following :
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's considers the quality of information available on the rated
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the lead rating analyst and to the Moody's legal entity that has issued
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Alberto Postigo
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Espana, S.A.
Calle Principe de Vergara, 131, 6 Planta
Madrid 28002
Spain
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Johannes Wassenberg
MD - Banking
Financial Institutions Group
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Releasing Office:
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Moody's downgrades Caja Laboral to Ba1; outlook negative
